Portland's top financial official this week warned that negotiations with the Portland Winterhawks to renovate Veterans Memorial Coliseum could fall apart.

The city, the Portland Development Commission, the Winterhawks and Paul Allen's Portland Arena Management are months behind schedule negotiating a potential $31.5 million deal.

"We're at a critical path in our negotiations," Jack Graham, the city's chief administrative officer, told the Portland City Council on Wednesday. "The potential for this whole deal falling apart I think is very great."

The warning came as the City Council voted to continue negotiations, giving its tentative blessing for a complicated and risky structure that would potentially require the PDC to operate the coliseum beginning in 2018 or 2023.

The 5-0 vote came even though the PDC has yet to provide city leaders with a financial risk analysis or a legal opinion explaining how the urban renewal agency could take oversight of the aging arena.

The City Council will still need to authorize a final agreement, if one is reached, and they've conditioned approval on the risk analysis and legal opinion.

The Winterhawks are willing to commit $10 million toward the renovation, but team officials want to play at the coliseum for 20 years. An existing operation agreement between the city and PAM expires next year, but Allen's company has committed to one of its five-year options, meaning PAM will continue operations into 2018. The city has asked PAM to pick up its second option to 2023 but that has yet to happen.

Either way, the Winterhawks want assurances through 2033.

The city is unwilling to take on that responsibility. The PDC, however, is willing to take operational responsibility of the coliseum, but such a structure is risky, officials have acknowledged.

Under the deal being negotiated, the city would be required to cover losses at the coliseum up to $375,000 annually and PDC would pick up losses beyond that. Right now, PAM covers all losses, which in the last year were $165,000, PDC board chairman Scott Andrews said.

The city also would increase its spending for capital improvements from $250,000 to $375,000 a year.

For the PDC, risk comes from how it would pay for operating losses -- and how big they could be. The agency couldn't use urban renewal dollars. But the proposal would instead give the PDC development rights for property at the Rose Quarter owned by taxpayers, which the PDC hopes to use to turn a profit through future development deals.

This "entrepreneurial" approach, leaders suggested, could be a model for the PDC in future years. After being flush with cash for years from urban renewal districts, PDC is now facing smaller annual budgets as districts expire.

It should be noted, however, that PAM didn't take advantage of its development rights and let them expire last year, leaving some doubt about how valuable those rights would be. Asked about the value, Andrews said it's "hard to say" but expressed confidence that it would cover any potential losses.

To some degree, city officials are backed into a corner. After deciding to keep the publicly-owned coliseum instead of demolishing it for a baseball stadium, leaders need to keep it occupied with an anchor tenant. The coliseum would be the recipient of $21.5 million in urban renewal funds, eating up all the money that had been set aside for Rose Quarter redevelopment.

In 2010, Mayor Sam Adams had boldly pegged redevelopment of the Rose Quarter as part of his effort to improve high school graduation rates.

"This is a very difficult project. This is a very difficult part of town. But I believe it is worth the effort, because if we get it right, it will have a benefit citywide," Adams said in November 2010. "It will put more Portlanders back to work. And it has the opportunity to improve our high school graduation rate and our college attainment rate. So, I like the idea of high expectations, and our goal is to exceed them."

Beyond not meeting those lofty, if unrealistic, goals, the protracted negations clearly are wearing on officials.